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Sleep Number(SNBR) - 2022 Q2 - Earnings Call Transcript
Sleep NumberSleep Number(US:SNBR)2022-07-27 22:50

Financial Data and Key Metrics Changes - Net sales for Q2 2022 increased by 13% to $549 million, driven by servicing a portion of the profitable excess backlog despite weaker demand and electronic component delays [8][25] - Net operating profit for Q2 was $50 million, a 68% increase from 2021, with a net operating profit rate of 9.1%, up 300 basis points year-over-year [8][9] - Earnings per diluted share were $1.54, a 75% increase compared to $0.88 a year ago, with a trailing 12-month ROIC of 21.8% [9][30] - The updated EPS outlook for 2022 is revised to $3 to $4, reflecting ongoing economic challenges [9][22] Business Line Data and Key Metrics Changes - Delivered smart bed units in Q2 represented a stronger-than-average profit profile, despite a 12% decline in demand compared to the previous year [7][9] - Average Revenue per Unit (ARU) increased by 27% year-over-year to $6,485, although smart bed deliveries were down 11% compared to Q2 2021 [26] Market Data and Key Metrics Changes - Consumer sentiment has significantly declined, correlating with a 12% drop in demand for Sleep Number products in Q2 [6][7] - The annual inflation rate reached over 9% in June, impacting consumer purchasing power and sentiment [6] Company Strategy and Development Direction - The company is focused on maintaining liquidity and financial flexibility while advancing long-term strategies, including cost reductions of over $100 million [10][19] - New product innovations, such as the Climate360 smart bed, are set to launch in October, designed to enhance sleep quality and reduce component complexity [13][14] - The company is transitioning to a new smart bed platform in 2023, which is expected to improve supply chain efficiency and product availability [14][19] Management's Comments on Operating Environment and Future Outlook - Management noted that external business conditions have worsened, with record low consumer sentiment and higher input costs impacting operations [9][22] - The company anticipates demand to decline in the high single to low double digits for the remainder of the year, with net sales growth expected to be low single digits due to backlog servicing [30][31] - Management remains optimistic about future opportunities as consumer sentiment improves and supply chain issues are resolved [20][22] Other Important Information - The company has suspended share repurchases and narrowed capital spending projects to manage costs effectively [22] - Strategic investments are being made to enhance supply chain flexibility and resilience [19] Q&A Session Summary Question: Clarification on Q3 earnings and EPS guidance - Management explained that Q3 is expected to be breakeven due to delivery constraints and necessary spending to generate demand, with a more profitable Q4 anticipated [37][38] Question: Pricing changes and input costs - Management confirmed that additional pricing actions are being taken to address higher input costs and inefficiencies in supply flow [42][43] Question: Demand trends and consumer sentiment - Demand was most impacted in May, with some recovery in June and July as adjustments were made to respond to the changing consumer environment [49][50] Question: Financing options with Synchrony - Management discussed the extended partnership with Synchrony to support consumer financing, maintaining a stable penetration rate for financing options [52][53] Question: Backlog servicing and sales impact - Management indicated that backlog servicing will contribute to sales, but the extent will depend on demand and supply dynamics in the back half of the year [60][61] Question: Risks of order cancellations - Management noted that while there was a slight increase in cancellations during Q2, it was not material to the overall business [66][67] Question: Confidence in guidance and supply normalization - Management expressed cautious optimism about supply normalization in 2023, with expectations for improved gross margin rates as supply chains stabilize [72][74]